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Global markets are on alert: the US dollar is losing ground, and the debt pressure on the US budget is gaining dangerous momentum. The financial model that has allowed the US to live in debt for decades thanks to the dollar’s status as the world’s reserve currency may not be able to withstand new challenges, the Economist reports.
Since 1 April, the dollar has already fallen by more than 4% against a basket of major currencies, and ten-year Treasury yields have risen sharply. Investors are fleeing the dollar and US assets, fearing economic instability in the US and Donald Trump’s unpredictable policies.
Experts compare the situation to the “triple yasu” crisis that hit Japan in the 1990s: a simultaneous fall in stock markets, rising debt rates, and currency devaluation.
The American debt is on the brink
The US federal debt has reached 100% of GDP. More money is already spent on interest payments than on national defence. Over the next year alone, the government will have to refinance $9 trillion of debt, which is almost a third of the country’s GDP.
The dollar’s unique status as the main reserve currency has allowed the United States to finance its deficit for decades without catastrophic consequences. But now this “excessive privilege” is under threat.
Trump’s new tariff policy, political instability, rising budget deficits and dubious initiatives are all causing investor distrust and increasing pressure on the US financial system.
Investors are preparing for the worst
Economists warn that the United States could repeat the scenario of 1971, when the Bretton Woods monetary system collapsed. Back then, America abandoned the gold standard, which caused a global financial shock.
Now the danger is different – the flight from the dollar and rising interest rates could make debt servicing critically expensive for the US. If the market finally loses confidence in US fiscal policy, it could lead to a fiscal disaster.
“Only a week ago, the dollar’s power seemed unshakable. Now, this scenario seems real – and the threat to it is not from an external enemy, but from the internal chaos of US politics,” analysts say.
The world is watching – the US financial stability has never been so fragile.
